Country and Area Studies

On June 24, 1994, in an attempt to stem the fall of the dollar, President Clinton and Treasury Secretary Bentsen stated in no uncertain terms that the U.S. wants a stronger dollar, not a stronger yen. The U.S. monetary authorities made their presence felt in the foreign exchange market, intervening heavily in order to keep the dollar from falling further. The U.S. Federal Reserve also raised interest rates six times since the beginning of the year.

In spite of such concerted efforts by the United States, the yen-dollar rate failed to respond. This failure confirmed something very important: that the strong yen has little to do with the United States and has everything to do with Japan. After all, if the strong yen was master-minded in Washington as many were led to believe, such a clear statement from the White House should have been sufficient to turn the situation around. The fact that it didn't suggests that Washington had no bearing on the exchange rate from the very beginning, and that the causes behind the strong yen have always had their roots in Japan.